The Camden Board of Education has agreed to pay $500,000 to seven students who were made to eat their lunch on the floor as punishment.
The February 2008 incident sparked racial tensions in the city because of the way a class of 15 Puerto Rican fifth-graders was punished for spilling a jug of water.
State education officials ruled that the punishment was improper, but was not racially motivated.
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Under the settlement, which was first reported by the Courier-Post the seven students will split $280,000. Their lawyer will get $220,000.
The school board did not admit wrongdoing in the settlement, which was approved by the school board.
A teacher who reported what happened was previously awarded a $75,000 settlement.